Building your investment property: pros and cons - NAB
Should you build or buy an investment property?
The better option depends on what you want from the investment and how comfortable you are with the trade-offs.
A new build may suit you if you want more control over the property’s design, inclusions and long-term appeal. This path may also work well if you’re comfortable with a longer setup period before the property is ready for tenants.
An established property may suit you if you want to see exactly what you’re buying, assess the surrounding area more easily and choose from a broader range of suburbs or property types.
Before choosing, ask yourself what matters most: control, location, timing, simplicity, growth potential or the overall role the property plays in your investment strategy.
New build vs. established property
Use this comparison as a starting point when you’re deciding whether to build or buy.
| New build investment property | Established investment property | |
|---|---|---|
| What you’re buying | New build investment property A newly built home, off-the-plan property or property being constructed. | Established investment property An existing home that has already been built. |
| Investment setup | New build investment property Usually involves more decisions before the property is complete. | Established investment property Usually involves assessing the property as it already stands. |
| Loan structure | New build investment property May require a construction loan, with funds released in stages. | Established investment property May use a standard investment property loan. |
| Early cash flow | New build investment property You may need to cover costs before any rental income begins. | Established investment property Cash flow may begin earlier if rent starts soon after settlement. |
| Property condition | New build investment property Newer fixtures and fittings may reduce some early maintenance needs. | Established investment property Maintenance may vary depending on the property’s age and condition. |
| Tenant appeal | New build investment property May appeal to renters looking for modern layouts and features. | Established investment property May appeal to renters looking for established locations and amenities. |
| Location | New build investment property New builds are often in growth areas, new estates or redevelopment zones. | Established investment property Established properties may offer broader location choice, including mature suburbs. |
Tax rules and government policies can change over time. If tax treatment is part of your investment decision, check current information from the ATO and consider speaking with a registered tax adviser.
Why investors choose to build
Building an investment property can offer benefits that are different from buying an established home.
More control over the final property
Depending on the type of build, you may have input into the layout, finishes, fixtures and outdoor spaces. This can help you shape the property for the type of tenant you want to attract.
Lower early maintenance needs
Because the property is new, some fixtures, fittings and major systems may be less likely to need immediate repair. You’ll still need to budget for maintenance, but the early years may look different from owning an older property.
Depreciation opportunities
Newer properties may provide depreciation opportunities on eligible assets. These rules can be complex, so it’s worth getting professional tax advice before relying on depreciation as part of your investment strategy.
What can make building more challenging?
Building can involve more uncertainty than buying an established property.
Construction delays
Timelines can change because of weather, approvals, material availability, labour shortages or builder delays. This can affect when the property is ready to lease or refinance.
Cost changes
Build costs can shift during the build. You may need a buffer for variations, site issues, upgrades, landscaping, connection costs or unexpected expenses.
Market changes before completion
Property prices, rental demand and interest rates may change while your property is being built. This can affect your expected return, future borrowing capacity or rental income.
Builder and contract considerations
Choosing a builder, understanding your contract and knowing what’s included in the quoted price can make a big difference. It’s worth reviewing the details carefully before committing.
Location trade-offs
New builds are often located in growth areas or new estates. These areas may offer long-term potential, but it’s still important to research tenant demand, transport, schools, amenities and vacancy rates.
Understand the cash flow before you build
When you build an investment property, the order of money coming in and going out can look different from buying an established property.
You may need to cover costs before the home is complete and ready to lease. These may include:
- loan repayments during construction
- land settlement costs
- council rates and utilities
- insurance
- builder progress payments
- site or connection costs
- contingency funds
- leasing and property management costs once the build is complete
A useful question to ask is: Could I manage the repayments and other costs if the build takes longer than expected? If the answer is no, you may need to revisit your budget, loan structure or timing before committing.
Financing basics for building
Getting the right loan is one of the most important parts of building an investment property. A construction loan works differently from a regular home loan, and it’s designed to match the way building happens in stages. Here’s how it actually works:
Land purchase
You start by buying the land. This is when you pay your deposit and settle the contract. The bank may release the first part of the loan here.
Slab stage
Once the foundation is poured, the builder sends an invoice and the bank releases the next part of the loan.
Frame stage
After the walls and roof frame go up, another payment is made. This keeps the project moving without needing all the money upfront.
Lock-up stage
When the outside of the house is sealed (windows, doors, roof), the bank releases the next drawdown.
Completion stage
The final payment happens when the build is finished and ready for handover.
Each stage needs approval before your lender releases funds, so it’s important to stay organised. You’ll also need to budget for interest repayments during the build, as you’ll be paying on the amount drawn down so far.
Tax and depreciation: understand the basics
Tax can influence the return on an investment property, but it shouldn’t be the only reason you choose to build or buy.
Investors often consider:
- rental income and deductible expenses
- depreciation on eligible assets
- negative gearing
- capital gains tax when selling
- how tax rules apply to new versus established properties
The way these rules apply can depend on the property, purchase timing, ownership structure and your personal circumstances. Tax rules can also change, so it’s important to check current information and seek professional advice.
Questions to ask before building an investment property
Before you decide to build, it may help to work through these questions.
- How soon do I want rental income to begin?
- Can I manage repayments and costs before the property is leased?
- Have I allowed for construction delays or cost changes?
- Does the location match the type of tenant I want to attract?
- Have I compared the cash flow of building versus buying established?
- Do I understand how a construction loan works?
- Have I factored in insurance, rates, maintenance and property management?
- Am I relying too heavily on tax outcomes?
- Would an established property better suit my investment goals?
- Have I spoken to the right experts before committing?
These questions can help you look at the full picture, not just the build cost or expected rent.
If you’re thinking about building an investment property, start by running your numbers. Use our home loan calculators to check your borrowing capacity, equity position, stamp duty or estimate home loan repayments. Next, speak to a home loan expert who can help you understand your options, avoid common mistakes and choose the right loan for your situation and strategy.
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The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial and taxation advice before acting on any information in this article.
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